Non-resident withholding tax (NRWT) is a tax that’s deducted from the interest earned by non-residents in New Zealand. NRWT is a part of New Zealand’s tax collection system and is used to address the practical issue of collecting certain types of overseas income.
Another related payment to be aware of is non-resident passive income (NRPI). These kinds of payments, as stated in the subpart RF of the Income Tax Act 2007, instruct that New Zealand-based payers must withhold tax amounts when they make payments of interest, dividends, and royalties to non-residents (i.e. foreign investors).
Additionally, NRWT applies specifically to non-residents who earn passive income from New Zealand sources. The key distinction is that NRWT is a withholding tax, meaning it is collected at source by the New Zealand-based payer before funds are sent offshore. This differs from other tax obligations, where the taxpayer files a return directly with Inland Revenue.
For New Zealand businesses, understanding NRWT is critical because:
- You must register as an NRWT payer if you make payments to non-residents
- Failure to withhold NRWT can result in penalties and interest charges
- Applying incorrect NRWT rates may trigger IRD audits
- Double Tax Agreements (DTAs) can significantly reduce withholding obligations
If you pay non-resident passive income (INRP), then you are liable for non-resident withholding tax (NRWT). However, you must register as a payer and deduct non-resident withholding tax from the related payments you make.
New Zealand has several withholding tax regimes, which are often confused.
Resident Withholding Tax (RWT) applies to payments made to New Zealand residents. It is deducted at rates such as 10.5%, 17.5%, 30%, or 33%, depending on the recipient’s income level and tax settings. RWT generally applies to interest and dividends paid to residents.
NRWT, by contrast, applies only to payments made to non-residents. NRWT uses fixed rates (typically between 10% and 30%) regardless of the recipient’s income level.
Fringe Benefit Tax (FBT) is different again. It is an employer tax on non-cash benefits provided to employees and is not a withholding tax on income payments.
Key distinction:
If you are paying interest, dividends, or royalties to someone outside New Zealand, NRWT applies. If the recipient is a New Zealand resident, RWT applies instead. Using the wrong tax type or rate can result in IRD penalties and interest.
Tax rules of non-resident passive income can be challenging to understand. Below, we elaborate on withholding tax rules concerned with dividend, interest, and royalty, for your convenience:
1. Dividend
The standard rate of NRWT in New Zealand is 30%. If it is the fully imputed dividend, then this rate decreases to 15%. In some cases, NRWT rates can be further reduced to 0%.
2. Interest
The non-resident withholding tax rate for Interest is generally paid at 15%. In most cases, this rate is overridden by a Double Tax Agreement (DTA) to be paid at 10% of the gross amount of income instead. For an approved issuer, the non-resident withholding tax interest rate is reduced to 0%. Instead of deducting NRWT, they pay an approved issuer levy (AIL) on securities. This levy is calculated at a rate of 2% of the value of the registered security.
3. Royalty
Royalties are generally subject to NRWT if it is paid by a resident company to a non-resident company. For payments made from cultural royalty, NRWT is made at 15%, as a final tax. As for industrial or commercial royalties, the final tax liability is the greater of the withholding tax and the full income tax liability.
If the recipient is a resident of a tax treaty county, the rate is generally only 10% under the applicable DTA.
New Zealand has DTAs with more than 40 countries, which can reduce NRWT rates significantly. For example:
- Australia: Interest NRWT reduced from 15% to 10%
- United States: Interest NRWT reduced from 15% to 10%
- United Kingdom: Interest NRWT reduced from 15% to 10%
- China: Interest NRWT reduced from 15% to 10%
DTA eligibility depends on the recipient’s tax residency, the type of income, and whether they qualify as the beneficial owner. Evidence of overseas tax residency is required to apply reduced rates.
Typical NRWT scenarios include:
- Interest paid to overseas lenders
- Dividends paid to foreign shareholders
- Royalties paid to offshore licensors
NRWT generally does not apply where the recipient is a New Zealand resident, has a fixed establishment in NZ, or is exempt under the Income Tax Act 2007.
Because non-resident withholding tax is part of New Zealand’s tax collection system, it is very important for businesses to know and understand the areas involved with it, especially if a business has a withholding tax obligation.
In some cases, NRWT rates can be very high, maxing at 30%. If you miss a payment, or if a payment is made late, you will be charged a late payment penalty. You will also need to pay interest if you don’t make the payment when tax payments are due.
Furthermore, it is technically complex to apply rules of NRWT in practice and highly dependent on the facts and circumstances of the particular scenario. Because of this, it can be very challenging to apply NRWT correctly, and therefore, you need to pay extra attention when doing so.
Dealing with non-resident withholding tax in New Zealand can be difficult, to say the least. Hiring a financial accountant to help you through the process can lessen the stress and make NRWT easier to complete. As a professional accounting company specialising in New Zealand tax compliance, we can help you. We can help you file your income tax and help you through all NRWT related processes, including the following:
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